Dividend stocks are soaring in 2025, as investors adopt a defensive strategy amid market selloff

Investors are exploring ways to reduce risk and manage their investments due to worries about an economic slowdown and potential Trump tariffs that could negatively impact the stock market. As a result, dividend-paying stocks have surprised many by gaining significant value this year, providing attractive passive income.

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In 2025, U.S. companies that pay dividends have seen a big rise in value, outperforming the S&P 500 and other major stock indexes. The Schwab U.S. Dividend Equity ETF has increased over 3% this year, while the iShares Select Dividend ETF has risen nearly 4%. The SPDR S&P Dividend ETF has also gained 3.3% during the same period. According to FactSet, these dividend stocks have performed much better than the S&P 500, which dropped by 0.3%, and the Nasdaq Composite, which fell by almost 4%.

According to Ned Davis Research, dividend-paying stocks in the S&P 500 have reached multi-month highs compared to large-cap stocks that do not pay dividends.

“In the five trading days ending February 25, dividend stocks outperformed non-dividend stocks by 4.3%, reaching the highest ratio since December 3. As of February 18, the top 25% of S&P 500 stocks by dividend yield returned 1.6% compared to a loss of 2.6% for the lowest yielders, raising the Highest Yielders/Lowest Yielders ratio to a five-month high,” said Ed Clissold and his team at Ned Davis.

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Dividends are payments companies make to their shareholders. Stocks that pay dividends are seen as stable investments because these companies usually have sound financial health and steady cash flow. They often operate in stable sectors like healthcare, consumer goods, and utilities, which are less affected by economic downturns. This stability helps investors lower their portfolio risks.

Since January 2025, investors have created defensive portfolios because of concerns about inflation returning while the economy stagnates. Worries about the government's economic strategy, especially the Department of Government Efficiency's planned layoffs for federal employees, have made American consumers and business owners more skeptical about the economy.

Additionally, President Donald Trump's nationalist trade policies have caused significant market instability this week. On Monday, he announced that suspended tariffs on Canadian and Mexican goods would start again on Tuesday after a month-long pause. He also stated that a new ten percent tax on Chinese goods would be added to the existing ten percent tax imposed earlier this month.